Futures market promises farmers stable product prices

The capital markets regulator has appointed a consultant to set up a futures exchange market, bringing the promise to offer farmers stable commodity prices and a ready market for their produce closer.

Futures exchange markets have helped reduce the volatility of commodities such as cereals, oil, and minerals by giving traders a centralised view of the demand and supply situation to predict price trends.

The National Cereals and Produce Board has already built a warehouse system for farmers to store their produce in exchange of receipts that could be used as guarantee for bank loans.

The Capital Markets Authority (CMA) on Thursday said that it had appointed Assim Jang, a futures expert who has worked in the United Kingdom, the United States, and Pakistan to help establish the market.

CMA started the search for a consultant in 2011 but in April last year said that it was seeking fresh applications, delaying the establishment of the exchange which was supposed to be operational by last June.

(Read: CMA search for consultants delays futures market)

At the time, CMA chairman Kung’u Gatabaki said the process had not been finalised since some bidders, especially those from abroad, said the advert did not have enough information on what the regulator was looking for.

“The authority has brought on board a long-term futures and derivatives expert, Assim Jang, to provide technical assistance in the development of the long-awaited futures exchange, the first in East Africa.

‘‘This is part of a wider plan to make Nairobi an international financial centre,” said CMA in a statement released on Thursday.

CMA said it had negotiated a one-year contract with Mr Jang, who will engage various stakeholders including senior officials at the ministries of Finance, Trade, Environment and Mineral Resources, Energy, Agriculture; the Central Bank of Kenya, and banks.

He will also talk to the Central Depository and Settlement Corporation, commodity exchanges in the country, warehousing institutions, fund managers and other financial intermediaries and come up with recommendations on how to establish a market where futures contracts can be traded.

Mr Jang is credited with setting up Pakistan’s first all-electronic commodity futures exchange, the National Commodity Exchange Limited.

CMA said that he introduced and implemented volatility-based risk management systems and processes, as well as the Central Counterparty Clearing model in the central Asian country.

Mr Jang’s role will be to come up with a guide that will be followed in the regulation of the futures market, its establishment, and operations.